Social Benefits of Homeownership and Stable Housing

NATIONAL ASSOCIATION OF REALTORS® Research Division August 2010

Introduction
Research has consistently shown the importance of the housing sector on the economy and the long-term social and financial benefits to individual homeowners. The economic benefits of the housing market and homeownership are immense and well documented. The housing sector directly accounted for approximately 14 percent of total economic activity in 2009. Household real estate holdings totaled $16.5 trillion in the first quarter of 2010. After subtracting mortgage liabilities, net real estate household equity totaled $6.3 trillion. In addition to tangible financial benefits, homeownership brings substantial social benefits for families, communities, and the country as a whole. Because of these societal benefits, policy makers have promoted homeownership through a number of channels. Homeownership has been an essential element of the American Dream for decades and continues to be so even today. The purpose of this paper is to review existing academic literature that documents the social benefits of homeownership. Furthermore, this paper examines not only the ownership of homes, but also the impact of stable housing (as opposed to transitory housing and homelessness) on social outcomes, looking specifically at the following outcome measures: • • • • • • Educational achievement; Civic participation; Health benefits; Crime; Public assistance; and Property maintenance and improvement.

In general, research supports the view that homeownership brings substantial social benefits. Because of these extensive social benefits - what economists call positive externalities - policies that support sustainable homeownership are well justified. 1

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There is a strong correlation between homeownership with income, education, age, marital status, and several other factors. Therefore, a strong correlation between homeownership and social outcome variables may simply be superfluous in that the correlation is simply capturing the impact of higher income, education, and the like. To isolate the impact solely attributable to homeownership and/or stable housing, it is important to control for factors that are generally present with homeownership (like higher income and older age). Carefully executed research, as documented below, takes these and many other factors into account to isolated the impact of homeownership on social outcomes.

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Trends in Homeownership
The prevalence of homeownership is not universal. Across different demographic groups and even within different regions of the country, the homeownership rate varies widely. Many of these gaps are long standing. Therefore, the social benefits of homeownership differ widely from community to community. Less than half of Americans owned their homes at the beginning of the 20th century (see Exhibit 1). Homeownership remained fairly stable until the onset of the Great Depression, during which many homeowners lost their homes. In the subsequent two decades, the homeownership rate rose dramatically with the rate easily topping 60 percent by 1960. Modest gains were made during the 1960s, 1970s and 1980s. However, during the early 1990s, the homeownership rate once again trended upward as mortgage rates steadily declined and the economy expanded at rates not experienced in many years. By 2004, 69 percent of Americans owned their homes – a record high. The homeownership rate has since declined to 66.9 percent as of the second quarter 2010.
Exhibit 1

Homeownership Rate for Selected Years (1900 – 2010)

70% 65% 60% 55% 50% 45% 40% 35% 30%

Source: U.S. Census Bureau, (* second quarter 2010)

Minorities have made marked progress in homeownership in recent years (see Exhibit 2). But even with these gains, the homeownership rate among minorities still lags significantly behind that of whites. In 2009, fewer than half of African-American and Hispanic households owned their homes. In contrast, more than 74 percent of non-Hispanic whites were homeowners. A large part of the gap in homeownership among minorities can be attributed to differences in economic circumstances and the age composition of minority populations. Income and wealth 3

holdings among minorities are typically lower than that of whites. Furthermore, there is a disproportionately higher share of younger households – who are less likely to be homeowners – among minorities. Finally, a large number of minorities, particularly Asians and Hispanics, live in less affordable urban centers on both the East and West coasts. By some estimates, if income, age, and family type (but not location) of minorities were similar to that of whites, the homeownership gap would be reduced from roughly 25 percentage points to about 10 percentage points. Even after adjusting for financial and demographic factors, minorities would have a lower homeownership rate than whites.
Exhibit 2

Recent research suggests that targeting discrimination in housing and mortgage markets or targeting renters’ lack of information about the home buying process would contribute to narrowing of racial gaps in homeownership. Also important are efforts to reduce differences in household circumstances by race and ethnicity—including wealth, income, and marital status— that account for a large majority of observed differences in homeownership rates. 2 One of the primary drivers of homeownership is income. As Exhibit 3 shows, the homeownership rate is less than 35 percent for households in the lowest income bracket while it approaches 90 percent for those in the top income bracket. Higher income clearly widens the choice of available homes for purchase and increases the likelihood that a household will qualify for a mortgage. While homeownership is not limited to those with higher incomes, households with lower incomes face barriers such as too few homes in lower price ranges in locations near their place of employment.
Haurin, Donald R., Herbert, Christopher E. and Rosenthal, Stuart S., Homeownership Gaps Among Low-Income and Minority Households. Cityscape, Vol. 9, No. 2, 2007.
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A home purchase entails substantial transaction costs, as measured both in financial resources and search time; therefore it is rational for people who are expecting to move frequently to forego homeownership. Younger households are more mobile because they are more likely to be single and more likely to change employers. As a result, mobility rates decline as age rises. According to the U.S. Census Bureau, about one-quarter of those aged 20 to 29 years moved during 2008 while only4 percent of those aged 55 and over moved during the same year. 3 Higher mobility rates among young people contribute to lower homeownership rates for this group. In addition, due to the large upfront cost associated with purchasing a first home, households need time to accumulate necessary savings. Therefore, as Exhibit 4 depicts, it is not surprising to see that homeownership rates rise with the age of households.

Homeownership and Stable Housing
Homeownership and stable housing go hand-in-hand. Homeowners move far less frequently than renters, and hence are embedded into the same neighborhood and community for a longer period. While 5.2 percent of owner-occupied residents moved from 2008 to 2009, nearly 30 percent of renters changed residential location. 4 The key reason for the higher “mover rate” among renters is the fact that renters are younger – that is, changing and searching for ideal jobs, not yet married, and hence, literally, less committed. The mover rate or percentage of people changing residence, among 20-to-24 year-olds was 27 percent, and for 25-to-29 year-olds it was
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As to why people move, the predominant reason given by Current Population Survey respondents in 2009 was housing-related. Almost one-third said they moved to a better home, a better neighborhood, or into cheaper housing. The second most popular reason cited was familyrelated at 26.3 percent. Work-related reasons (new job, lost job, easier commute, retired, etc.) were reported by only 17.9 percent of respondents. Very few indicated change of climate and health reasons for moving. Poverty status and marital status also have strong relationships with mobility. The mover rate among those living below the poverty level was almost twice as high as those living above the poverty line. By contrast, the mover rate for married-couple family households was only half the rate compared with households living in other arrangements. To determine the impact of homeownership on mobility, it is necessary to employ a mathematical regression model to isolate the impact of individual variables. Just because renters are five times more likely than homeowners to move, does not mean that the renters are moving because of their tenure status. High renter mobility could be a result of renters being young and not married. The Census report, after employing such a technique, found that homeownership does have a statistically significant impact of lowering the mover rate. That is, among people of the same age, same income, and same marital status, a person was significantly more likely to change residence in a given year if he or she was a renter rather than a homeowner. Homeowners bring stability to neighborhoods. 6

Many sociology studies have found that residential stability strengthens social ties with neighbors. 5 Other research has focused on how mobility diminishes the depth of social ties because there is less time to build long-term relationships. Sampson and his colleagues argue that social cohesion and strong ties are paths through which resources for social control are made. 6 As we shall see, the purported benefits of homeownership may partly arise not directly from ownership, but from greater housing stability and social ties associated with less frequent movements among homeowners. Therefore, policies to boost homeownership can raise positive social outcomes, but only to the extent that homeownership brings housing stability.

Homeownership and Educational Achievement
In this section several studies on the relationship between homeownership and educational achievement are discussed. Consistent findings show that homeownership does make a significant positive impact on educational achievement. Less clear, however, is whether homeownership in itself, stable housing (i.e., less frequent residential change), or favorable neighborhood characteristics are the main underlying factors contributing to better educational outcomes.
Warner, B. and P. Roundtree, 1997, "Local social ties in a community and crime model: questioning the systematic nature of informal social control," Social Problems 44: pp. 521-536
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Green and White found that homeowners have a significant effect on their children’s success. The decision to stay in school by teenage students is higher for those raised by home-owning parents compared to those in renter households. 7 Furthermore, daughters of homeowners have a much lower incidence of teenage pregnancy. The authors point to certain behavioral characteristics required of homeowners that get passed onto their children. First, a home purchase naturally involves one of the largest financial commitments most households will undertake. Homeowners, therefore, tend to minimize bad behavior by their children and those of their neighbors that can negatively impact the value of homes in their neighborhood. Second, homeowners are required to take on a greater responsibility such as home maintenance and acquiring the financial skills to handle mortgage payments. These life management skills may get transferred to their children. However, the causation link between homeownership and improved schooling performance is not completely clear. It could very well be that homeownership brings residential stability, and it is the stability that raises educational attainment. Such an interpretation would be consistent with a study by the New York Federal Reserve Bank which found that, though homeownership raises educational outcomes for children, neighborhood stability further enhanced the positive outcome. 8 In addition, a study by Hanushek, Kain, and Rivkin showed that changing schools negatively impacts children’s educational outcomes particularly for minorities and low income families. 9 Aaronson found that parental homeownership in low-income neighborhoods has a positive impact on high school graduation. 10 But he cautioned that some of the positive effects may arise due to the greater neighborhood stability (less residential movement) and not necessarily to homeownership alone. In another study by Harkness and Newman, the authors examined whether children from lowerincome and higher-income families benefit equally from homeownership and found that for children growing up in families with incomes less than 150 percent of the federal poverty line, homeownership raises educational attainment, earnings, and welfare independence in young adulthood. These positive results do not extend to the long-term outcomes of children in families with incomes more than 150 percent of the poverty line, however. These findings suggest that homeownership effects are not only attributable to unobserved characteristics of homeowners, but also indicate causal effects 11 . In another study, jointly authored by a sociologist and an economist, a higher overall quality of life among homeowners is believed to contribute to the well-being of both homeowners and their children in a number of ways. For example, young children of homeowners tend to have higher levels of achievement in math and reading and fewer behavioral problems (which often carry
Green, Richard K. and Michelle J. White 1997. “Measuring the Benefits of Homeowning: Effects on Children,” Journal of Urban Economics 41(3): 441-461.
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Harkness, J. and S. Newman, 2003.“Effects of Homeownership on Children: The Role of Neighborhood Characteristics and Family Income,” FRBNY Economic Policy Review. Hanushek, E., J. Kain, S. Rivkin, “The Cost of Switching Schools,” Working Paper, University of Texas, 1999. Aaronson, D., A Note on the Benefits of Homeownership, Journal of Urban Economics, 47 (3): 356-369.

over into reduced deviant behavior in later years). Better social outcomes arise as parents provide a more supportive environment for their children. These factors, as well as many others, help explain increased educational attainment and higher lifetime annual incomes of homeowners’ children. 12 Research has also confirmed that access to economic and educational opportunities are more prevalent in neighborhoods with high rates of homeownership and community involvement. 13 Boehm and Schlottmann show that the average child of homeowners is significantly more likely to achieve a higher level of education and, thereby, a higher level of earnings. The authors further find the housing tenure of parents plays a primary role in determining whether or not the child becomes a homeowner. 14 Finally, a recent study examining whether homeownership has positive effects on the academic achievement of children finds significant effects of home environment, neighborhood quality, and residential stability on the reading and math performance of children between the ages of three and twelve. 15 Because it appears that educational outcomes were strongly influenced by homeownership and residential stability, the authors suggest that government policies that promote homeownership or residential stability should be considered as part of any strategy to improve education.

Homeownership and Civic Participation
Homeowners have a much greater financial stake in their neighborhoods than renters. With the median national home price in 2010 at $166,000, even a 5 percent decline in home values will translate into a loss of more than $8,300 for a typical homeowner. Because owners tend to remain in their homes longer, they add a degree of stability to their neighborhood. Homeowners also reap the financial gains of any appreciation in the value of their home, so they also tend to spend more time and money maintaining their residence, which also contributes to the overall quality of the surrounding community. 16,17 Renters, with less wealth tied to a specific locality, have less incentive to protect the value of their property via the political process. The right to
Haurin, Donald R., Toby L. Parcel and R. Jean Haurin 2001. “The Impact of Homeownership on Child Outcomes.” Low-Income Homeownership Working Paper Series LIHO-01.14, Joint Center for Housing Studies of Harvard University. Ellen, Ingrid Gould and Margery Austin Turner 1997. “Does Neighborhood Matter? Assessing Recent Evidence,” Housing Policy Debate 8(4): 833-866. Boehm, Thomas P.; Schlottmann, Alan M. Does Home Ownership by Parents Have an Economic Impact on Their Children? Journal of Housing Economics, Sept. 1999. Vol. 8, Iss. 3, pgs 217-232.
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HLisa L MohantyH, HLakshmi K RautH. Home Ownership and School Outcomes of Children: Evidence from

pass property to an heir or to another person also provides motivation to properly maintain the property. The extent of community involvement and the benefits that accrue to society are hard to measure, but several researchers have found that homeowners tend to be more involved in their communities than renters. For example, homeowners were found to be more politically active than renters. 18 Homeowners participate in elections much more frequently than renters. A study by Glaeser and DiPasquale found that 77 percent of homeowners said they had at some point voted in local elections compared with 52 percent of renters. 19 The study also found a greater awareness of the political process among homeowners. About 38 percent of homeowners knew the name of their local school board representative, compared with only 20 percent of renters. The authors also found a higher incidence of membership in voluntary organizations and church attendance among homeowners. As before, it is not clear if homeownership in itself determines more civic participation or if the correlated variable of residential stability is more responsible for higher civic participation. One study that directly attempted to disentangle the two impacts found length of residence to be more important than homeownership. Therefore, according to this study a renter household in a stable neighborhood is more likely to be engaged in a community and civic activity than a homeowner who frequently moves. There also is some evidence that homeownership programs may result in increased property values near subsidized or locally assisted homeownership sites and can, under the right circumstances, draw other non-housing investment to the community. 20

Homeownership and Health Benefits
Homeowners are happier and healthier than non-owners. But again, it would be incorrect to simply look at the correlation between homeownership and health outcomes to draw conclusions since homeownership is also correlated with such factors as income and education levels. And surely, higher income and education are associated with better health. Nonetheless, there are a few academic studies that provide evidence of the positive impact of homeownership on health even after controlling for factors like income and education. Rohe and Stegman found that low-income people who recently became homeowners reported higher life satisfaction, higher self-esteem, and higher perceived control over their lives. 21 But the authors cautioned on the interpretation of the causation since residential stability was not
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controlled for. Similarly, Rossi and Weber concluded that homeowners report higher self-esteem and happiness than renters. 22 For example, homeowners are more likely to believe that they can do things as well as anyone else, and they report higher self ratings on their physical health even after controlling for age and socioeconomic factors. In addition to being more satisfied with their own personal situation than renters, homeowners also enjoy better physical and psychological health. 23 Another study showed that renters who become homeowners not only experience a significant increase in housing satisfaction, but also obtain a higher satisfaction even in the same home in which they resided as renters. 24 More recently, research examining the association of self-rated health with socioeconomic position showed that social mobility variables, such as the family financial situation and housing tenure during childhood and adulthood, impacted one’s self-rated health. In particular, the socioeconomic disadvantage indicated by not being able to save any money or not owning or purchasing a home, is negatively associated with excellent or very good self-rated health. 25 A similar examination, but looking at self-reported financial well-being, also showed financial well-being depends on home ownership, the number of children, health insurance, age, and income. 26

Homeownership and Crime
Homeowners have a lot more to lose financially than do renters. Property crimes directly result in financial losses to the victim. Furthermore, violent non-property crimes can impact the property values of the whole neighborhood. Therefore, homeowners have more incentive to deter crime by forming and implementing voluntary crime prevention programs. Research on crime and homeownership shows that homeowners are far less likely to become crime victims. A study of both property and violent crime in New York City suburbs found that homeowners encountered significantly lower crime rates even after controlling for other

socioeconomic variables 27 . Glaeser and Sacerdote also found a lower incidence of crime victims among homeowners. 28 From sociological literature on social disorganization, recent research by Miles-Doan showed residential mobility as a contributing factor for the higher violence rate by spouses and intimates. 29 In a similar vein, a recent work by Kubin found that residential mobility is significantly and positively related to homicides. 30 The results are congruent with sociologists’ theories of social disorganization, or a breakdown in social bonds, family and neighborhood association. 31 A high level of social disorganization is said to exist where there is a high level of deviance in social norms and a lack of community to realize common values. Crime, suicide, juvenile delinquency, teen pregnancy and drug usage are all the consequences of social disorganization. The generally accepted causes of social disorganization include poverty, low educational attainment, family disruption, and racial segregation in urban life. In addition, frequent residential mobility is also considered one of the key causes of social disorganization. For example, one of the first college textbooks on the subject, appropriately titled Social Disorganization, mentions crime, unemployment, divorce, venereal disease, illiteracy, undernourishment, and mobility and transiency (our emphasis) as indications of a disorganized society. 32 In another study Bursik showed the link between mobility and crime. 33 A stable neighborhood, independent of ownership structure, is also likely to reduce crime. It is easier to recognize a perpetrator of crime in a stable neighborhood with extensive social ties. Therefore, the empirical studies showing a lower crime rate among homeowners and people living in a stable housing environment are consistent with theories on social disorganization.

Homeownership and Public Assistance
We found earlier that housing stability lowers teenage pregnancy. There is vast literature on the link between teen pregnancy and the likelihood of receiving public assistance. 34 Therefore, to the extent that homeownership and stable housing reduce teen pregnancy, one can expect a reduction in the incidence of public assistance among those living in a stable neighborhood. Furthermore, Page-Adams found that homeowners are better able to adjust after being laid off from a job due to their access to home equity credit lines, and hence, lessening their need for public assistance. 35

Homeownership and Property Maintenance and Improvement
Another key benefit received by homeowners is the structural quality of their housing. 36 However, a well maintained home not only generates benefits through consumption and safety, but research has shown that high quality structures also raise mental health. 37 It is often suggested that owner-occupied housing is better maintained than renter-occupied. In a study by Henderson and Ioannides, the authors argue that landlords cannot distinguish between households that will maintain a rental unit from those that will cause damage. Consequently, landlords charge rents based on the expected level of care that will be taken by renters and households that plan to take care of their dwelling are motivated to become homeowners. 38 Further, homeowners have a financial interest in ensuring that their unit is well maintained and repaired while mobile households may ignore damage. 39 In contrast, Ozanne and Struyk find that including information about the neighborhood and housing structure in estimating statistical relationships causes the owner-occupancy effect to disappear. 40

Another early study finds that owner-occupant landlords are more likely to rehabilitate housing dwellings than other rental housing landlords because owners most directly experience the improvements, as opposed to current and future renters or tenants. 41 Heywood also finds that income impacts the level of maintenance with low-income owneroccupants maintaining their homes less than high-income owner-occupants. 42 When looking at the different effect renters have on maintenance, research compared differences in price appreciation using the repeat sales technique and found some evidence that renteroccupied housing appreciates less than owner-occupied housing. 43 Finally, a study looking at how much neighbors affect each other provides evidence that the maintenance behavior of individual homeowners is influenced by those of their neighbors. 44

Conclusion
Owning a home embodies the promise of individual autonomy and is the aspiration of most American households. Homeownership allows households to accumulate wealth and social status, and is the basis for a number of positive social, economic, family and civic outcomes. Two-thirds of all U.S. households who own their home currently are enjoying these benefits. The positive social benefits from homeownership and stable housing are compelling. As this paper has shown, there is evidence from numerous studies that attest to the benefits accruing to many segments of society. Homeownership boosts the educational performance of children, induces higher participation in civic and volunteering activity, improves health care outcomes, lowers crime rates and lessens welfare dependency. Owning a home is different from renting. With the home purchase comes the pride of ownership and the sense of belonging in a community where one has a financial stake in the neighborhood. Perhaps, homeowners are “happier” just from having achieved the so-called “American Dream” -- a sense of accomplishment, a milestone. Also, ownership entails greater individual responsibility. As discussed above, homeownership requires a large (if not the largest) financial outlay of a person’s life and often requires the responsibility of a mortgage spanning 30 years. Therefore, it is a long-term commitment, which may alter human behavior. Given such an opportunity, public policy makers would be wise to consider the immense social benefits of homeownership for families, local communities and the nation.